01—Abstract
Summary
Summary of the 10-K filed February 26, 2013. Cited figures are marked; the original filing is the authoritative source.
Sempra Energy's 2012 Form 10-K (combined with SDG&E and SoCalGas) reports GAAP earnings of $859 milliona, or $3.48 diluted EPS, down 35% from $1.33 billion ($5.51 diluted) in 2011.
The decline was driven mainly by a $239 millionb after-tax noncash impairment on its Rockies Express Pipeline investment (a $400 million pretax write-down), the absence of the $277 million non-taxable remeasurement gain booked in 2011 on the South American utilities, and a sharp drop in Sempra Natural Gas earnings after the DWR power contract expired in September 2011. The California Utilities (SDG&E and SoCalGas) were the most stable contributors, with combined earnings of about $773 million, and improved on lower tax expense from a change in the tax treatment of capitalized repairs. Key risks for investors center on SONGS, where the 20% SDG&E-owned Units 2 and 3 have been offline since early 2012 and face a CPUC Order Instituting Investigation that could force SDG&E to refund revenues collected since January 2012 or remove SONGS from rate base; SDG&E also carries roughly $2.4 billion of estimated 2007 wildfire settlement and defense costs, with about $364 million of regulatory assets dependent on future CPUC recovery approval.
On the growth side, Sempra plans roughly $3.3 billionc of 2013 capital spending and a Cameron LNG liquefaction project estimated at $6-7 billion, while the board raised the quarterly dividend to $0.63 per share. Leverage has risen, with the debt-to-capitalization ratio at 55% consolidated, and management indicates SoCalGas dividends may be reduced or suspended over the next few years to fund capital programs. Credit ratings remained investment grade at year-end 2012.
02—Key points
Key Highlights
- 2012 earnings fell 35% to $859 million ($3.48 diluted EPS) from $1.33 billion ($5.51) in 2011, reflecting the $239 million after-tax Rockies Express impairment and the non-recurring 2011 $277 million remeasurement gain.
- Sempra Natural Gas swung to a $241 million loss in 2012 from $115 million of earnings in 2011, as its DWR power contract ended September 30, 2011.
- SONGS Units 2 and 3 remain offline; a CPUC investigation could require refunds of revenues collected since January 1, 2012 and removal of some revenue requirement from rates.
- SDG&E's 2007 San Diego wildfire settlement and defense costs are about $2.4 billion versus $1.1 billion of liability insurance and $824 million recovered from third parties; $364 million of regulatory assets depend on future CPUC recovery approval.
- Final CPUC Phase 1 cost of capital decision sets 2013 authorized ROE and common equity at 52%, reducing annual authorized revenue by about $34 million at SDG&E and $22 million at SoCalGas.
- Quarterly dividend raised to $0.63 per share ($2.52 annualized) from $0.60; 2012 dividends declared were $2.40 per share.
- Planned 2013 capital expenditures and investments of about $3.3 billion, including $2.5 billion at the California Utilities; Cameron LNG liquefaction project estimated at $6-7 billion with a final investment decision targeted by end of 2013.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 26, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $9.65B$10.04B | −3.9% |
| Interest Expense | $493.00M$465.00M | +6.0% |
| Net Income | $859.00M$1.33B | −35.5% |
| EPS (Basic) | $1.78$2.77 | −35.9% |
| EPS (Diluted) | $1.74$2.75 | −36.8% |
| Shares Outstanding (Basic) | 482.69M479.44M | +0.7% |
| Shares Outstanding (Diluted) | 493.39M483.05M | +2.1% |
05—Questions
Frequently Asked Questions
Why did Sempra's earnings decline so sharply in 2012?
Earnings fell $472 million to $859 million mainly because of a $239 million after-tax noncash impairment of the Rockies Express pipeline investment and the lack of the $277 million non-taxable gain recorded in 2011 on remeasuring South American equity investments. Sempra Natural Gas also weakened after its DWR power contract expired in September 2011.
What is the main risk to SDG&E from the SONGS nuclear outage?
Units 2 and 3 have been offline since early 2012 and cannot restart without NRC approval. The CPUC has opened an investigation that could require SDG&E to refund some or all revenues collected for SONGS since January 1, 2012, remove SONGS from rate base, or disallow costs. Management notes the outcome could materially affect results, cash flows and financial condition.
How large is the remaining exposure from the 2007 San Diego wildfires?
SDG&E's settlements, estimated future settlements and defense costs total about $2.4 billion, exceeding its $1.1 billion of liability insurance and roughly $824 million recovered from third parties. SDG&E has recorded $364 million of regulatory assets expecting recovery in rates, but that recovery requires future CPUC approval; if recovery became improbable, an after-tax charge of up to $190 million could result from the CPUC-regulated portion.
Will Sempra keep growing its dividend and how is it funding growth?
The board raised the quarterly dividend to $0.63 from $0.60 per share, but dividends depend on future earnings and cash flows. Management expects to fund roughly $3.3 billion of 2013 capital spending largely through operating cash flow, debt issuance, project financing and joint ventures. SoCalGas may cut or suspend dividends over the next few years to maintain its authorized capital structure while it invests heavily.
06—Continue